WTI Futures Settles at 7-Month Low

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures traded on the New York Mercantile Exchange and August Brent crude on the IntercontinentalExchange ended the opening week session down. West Texas Intermediate settled at a fresh seven-month low on the spot continuation chart ahead of the July contract's expiration Tuesday afternoon. The market continues its decline on high inventories, not expected to be drawn down until much later than previously thought.

"There is hardly any bullish price evidence to be seen. Supply and demand statistics are contributing to expectations of softer prices ahead," said Alan Levine, chairman of Washington, D.C.-based brokerage Powerhouse.

Crude production cuts of nearly 1.8 million bpd by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers in place since Jan. 1 and set to expire at the end of the first quarter 2018 are tightening global oil supply and demand, but have failed to draw down high inventory levels.

Levine highlighted total crude and oil products inventory in the United States was drawn down 43.1 million bbl from the end of August 2016, when it reached at least a 26-year high at 1.374 billion bbl, to a five-month low in late May, but has cut the draw down in half through mid-June, adding 22.3 million bbl to stockpiles, according to data from the Energy Information Administration.

Last week in its monthly Oil Market Report, the International Energy Agency also zeroed-in on stubbornly high oil inventory, reporting commercial oil inventory held by the 35-country membership of the Organization for Economic Cooperation and Development increased 18.6 million bbl in April to expand a surplus against the five-year average to 292 million bbl, a higher surplus then when OPEC first reached its agreement to cut production in late November.

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OPEC said their goal with the production cuts was to bring global oil inventory down to its five-year average.

"Indeed, based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018," said IEA.

Over the weekend, Saudi Arabian Energy Minister Khalid Al-Falih said he sees the global oil market rebalancing in the fourth quarter according to reports, indicating the projection took into account climbing U.S. shale oil production and higher output by Nigeria and Libya, both OPEC members exempt from production cuts because of internal issues.

Bloomberg reports Libyan crude oil production reached roughly 900,000 bpd, which is the highest output rate by the North African nation since 2013. Citing secondary sources, OPEC in its most recent Monthly Oil Market Report released last week shows crude production from Libya at 730,000 bpd in May after averaging 390,000 bpd in 2016 and 404,000 bpd in 2015.

EIA reported U.S. crude production averaged 9.332 million bpd during the week ended June 9, a 22-month high, and up 621,000 bpd since late November when the OPEC agreement was reached. Earlier this month, EIA forecast U.S. crude production could reach a record high of 10.0 million bpd in 2018.

NYMEX July WTI futures settled down 54cts at $44.20 bbl, with the previous low settlement on the spot continuous chart registered on Nov. 14, 2016 at $43.32 bbl. July WTI futures continued to leak lower following settlement to a fresh six-week spot intraday low at $44.09 bbl, with support at the $43.76 May low. August WTI futures settled down 54cts at $44.43 bbl.

"Current thinking is that shale oil break-even prices cannot be far below. This could slow new investment in shale drilling and ultimately support WTI prices going forward," said Levine.

August Brent crude on ICE settled down 46cts at a fresh 6-1/2 month low settlement on the spot chart at $46.91 bbl, testing support at last week's $46.70 bbl low with a $46.77 low today.

NYMEX July RBOB futures settled down 0.42cts at $1.4506 gallon, with July ULSD futures ending 1.59cts lower at $1.4111 gallon.

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Brian Milne

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